The Government has stepped in to prevent a wave of insolvencies when the COVID-19 support measures run their course in December 2020.
Temporary insolvency and bankruptcy protections are in place until 31 December 2020 to enable businesses to trade through the pandemic. The measures provide:
Between March and July 2020, there was a 46% decrease in the number of companies that have gone into external administration compared to the same period in 2019.
Anticipating a wave of insolvencies in early 2021, the Government has moved to streamline insolvency laws to enable small business to either restructure or efficiently wind up. There are three key elements to the reforms:
The measures will be available to businesses with liabilities of less than $1 million. You can find further information on the proposed insolvency reforms here.
In Australia, the insolvency laws currently do not differentiate between large and small businesses. Everyone goes through a similar process. For small business, the complexity and the cost of adhering to the current insolvency system often leaves little for creditors, makes it difficult to restructure, and places control of the business in the hands of an administrator. These reforms should help simplify the process.
With 46% less insolvencies between March and July this year compared to last year, it's clear the COVID-19 protections have not only protected business against COVID-19 trading conditions but also protected against natural attrition in the market.
It's essential in the lead up to Christmas and into the New Year you keep tight control of your debtors! Review your account management and debtor policies and keep tight controls.